Money in the Middle

Sandwich Generation Talking About Money Up, Down and Across Generations

Is Helping Mom and Dad Increasing Your Retirement Risk?

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Emotionally and financially, helping parents pay for housing is much different than helping your children buy a first home.  If Mom and Dad need help covering housing costs at this point in their life, something has not gone as planned.


It may be investments gone wrong.  It may be retirement costs are higher than expected.  Loss of retiree benefits.  Or there has been a medical condition that has eroded savings.  Or they simply need to move closer to relatives but can’t sell now.  A recent survey by the Pew Internet project found that of those aged 65+, almost 10% owed more on their mortgage than their house was currently worth; for those 50-64 – the percentage was 30%.


Some speak of this as a time of “negative inheritance.”  You thought you’d be getting a small inheritance from them someday, yet it has turned out that your money is flowing to help support them as they age.


So what’s the right thing to do?  It all depends.  Here are some tips. 


1. Have a frank discussion about money.  Not just the housing crisis, but an overall look at their financial position – debt, health insurance coverage, available assets so you can get a true sense –together – of the current and future needs.  If you have a financial advisor, you might ask them to help with this discussion since it will likely impact your financial future as well as theirs.  And having a third party can help.  It’s embarrassing for your parent and probably uncomfortable for you.


2.  Be honest with yourself about what you can do to help.  This is where the friction between emotion and money sparks.  If helping them jeopardizes your own financial position, it’s not a solution.  Funds to help them should not be coming out of your retirement funds, but rather out of current income or other savings.  Otherwise you are putting your future at risk and potentially perpetuating the cycle.  And if they are in the position they are in because of financially irresponsible behavior and show no signs of changing, your dollars won’t really make a difference.


3.  Structuring housing support.  Are you helping pay their mortgage, are you helping pay their rent, are you purchasing a home that they will be living in (paying some costs or none at all).  How you structure the financial assistance can make a big difference for your financial situation.  If you are purchasing the property, you have a financial asset.   If you are paying their mortgage, they own the asset.  If you are paying rent, that’s money that won’t be recouped. Also look into what your assistance does to their ability to tap into government assistance programs.  Speak with a tax advisor or elder law attorney about the right way to structure financial assistance that is beneficial for both of you.


Providing assistance to your parent can be a real treasure – a way to give back when it counts most.  Or it can be another strain on your already beleaguered finances putting both you and your parents at risk and leading to anger and resentment.


If you make the decision to help pay for housing, then understand this is not a decision you can easily turn away from in the future.  Take the time to get the information you need to make the right decision for you and your parents and your family.



Written by Laura Rossman

April 7, 2009 at 1:01 pm

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